Module: | MODULE B: RISK MANAGEMENT
Q396: A Non-Banking Financial Company (NBFC) plans to securitise a pool of retail consumer loans. The underlying loans in this specific pool have an original maturity of 18 months.
Under the RBI Securitisation framework, calculate the exact Minimum Retention Requirement (MRR) percentage the originator must maintain to ensure adequate skin in the game.
✅ Correct Answer: A
The correct answer is A. To align the interests of the originators with those of the investors and to prevent the offloading of toxic assets, the RBI mandates a Minimum Retention Requirement (MRR), commonly referred to as skin in the game.
The MRR percentage is mathematically tied to the original maturity of the underlying assets.
For a pool of loans with an original maturity of less than 24 months (such as short-term consumer credit or 18-month retail loans in this scenario), the mandatory MRR is 5 percent of the book value of the loans being securitised.
Options B, C, and D state incorrect thresholds for this maturity bucket.
The MRR percentage is mathematically tied to the original maturity of the underlying assets.
For a pool of loans with an original maturity of less than 24 months (such as short-term consumer credit or 18-month retail loans in this scenario), the mandatory MRR is 5 percent of the book value of the loans being securitised.
Options B, C, and D state incorrect thresholds for this maturity bucket.